THE DCIT, CENTRAL CIRCLE-1(2),, AHMEDABAD vs. PLASTENE INDIA LTD.,, AHMEDABAD

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ITSSA 399/AHD/2019Status: DisposedITAT Ahmedabad11 December 2023AY 2016-178 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the seized excel sheets containing details of both unaccounted cash receipts and payments must be read in their entirety. Citing Section 132(4A) and 292C of the Act, the Tribunal noted the legal presumption that contents of documents found during a search are true, meaning the revenue cannot selectively accept parts of the documents. The Tribunal relied on the jurisdictional High Court's decisions in CIT Vs Hynoup Food & Oil Ind. (P) Ltd. and M/s Navjivan Oils Mills vs. CIT, which state that seized material must be read as a whole and it's not permissible to pick and choose. Furthermore, referencing CIT vs. President Industries, the Tribunal reiterated that in cases of undisclosed business receipts, only the element of profit embedded therein should be brought to tax, not the gross amount. Therefore, the Tribunal confirmed the CIT(A)'s finding that only the net amount of receipts adjusted by payments should be treated as income. The Revenue's grounds of appeal were dismissed.

What were the facts?

This case involves two appeals by the Revenue against orders of the CIT(A) for Assessment Years (AY) 2014-15 and 2016-17. The assessee, Plastene India Ltd., a public company engaged in manufacturing recycled plastic, was subjected to search proceedings under Section 132 of the Income Tax Act, 1961, on September 20, 2016. During the search, excel sheets were found on a senior manager's laptop containing records of cash transactions (receipts and payments) for FY 2012-13 to 2015-16. The Assessing Officer (AO) identified unaccounted receipts and payments. The assessee contended that only the net difference between receipts and payments should be taxed. The AO accepted the assessee's revised figures for unaccounted receipts and payments but treated the entire gross unaccounted receipts as income, disallowing set-off for payments.

What were the issues?

1. Whether the CIT(A) erred in deleting the addition of ₹3,98,29,050/- made by the AO on account of undisclosed cash receipts, by allowing credit for cash expenses, contrary to Sections 37, 40A(3), and 69C of the Income Tax Act, 1961? Assessee's Contention: The assessee argued that seized documents should be considered as a whole, and only the net difference between unaccounted receipts and payments should be brought to tax, as it represents the real profit. They relied on the principle that only embedded profit in sales should be taxed, not the gross amount. Revenue's Contention: The Revenue contended that the CIT(A) erred in allowing credit for cash expenses against undisclosed cash receipts. They argued that admitted cash receipts are chargeable as income, and the assessee must provide evidence for deductions. The Revenue also argued that unaccounted expenses cannot be allowed as deductions against unaccounted receipts without reference to the Act's provisions for computing total income, and cited CIT Vs Hynoup Food & Oil Ind. (P) Ltd. regarding the applicability of Section 40A(3) to unaccounted payments.

Which sections of the Income-tax Act were involved?

Section 132,Section 132(4A),Section 143,Section 153A,Section 292C,Section 37,Section 40A(3),Section 69C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘’ C’’ BENCH, AHMEDABAD

Before: Ms SUCHITRA KAMBLE & SHRI WASEEM AHMED

Hearing: 14/09/2023Pronounced: 11/12/2023

आदेश/O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned two appeals have been filed at the instance of the Revenue against the separate orders of Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad, arising in the matter of assessment order passed under s. 143 r.w.s.

ITA nos.406 & 399/AHD/2019 A.Ys. 2014-15 & 2016-17 2

153A of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Years 2014-2015 & 2016-17.

First, we take up IT(SS)A No. 406/Ahd/2019, an appeal by the Revenue for AY 2014-15

2.

The Revenue has raised following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition to the extent of ₹3,98,29,050/- out of total addition of ₹4,42,03,466/- made by the AO, on account of undisclosed cash receipts, on the ground that credit of cash expenses should be allowed to the assessee. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that only the net cash receipts should be brought to tax without appreciating that admitted cash receipts by assessee are chargeable as income, whereas the assessee is required to lead evidence in support of claim of deduction of expenditure as per provisions of the Income Tax Act. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not applying the provisions of the Act including Section 37, 40A(3) and Section 69C, while allowing deduction of expenditure of ₹3,98,29,050/-. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that unaccounted expenses cannot be allowed as deduction against unaccounted receipts merely because they are not recorded in regular books of account, without reference to the provisions of the Act relating to computation of total income. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not applying the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs Hynoup Food & Oil Ind. (P) Ltd. - 150 Taxman 194 (Guj), in which it was held that Sec 40A(3) was applicable to unaccounted payments. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing deduction for payments made in cash without satisfying the rigour of the provisions of the Act and therefore giving benefits to the non-compliant assessee, which benefit is not available to tax compliant assessees. 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 8. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 3. The only effective issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 3,98,29050/- rather than confirming entire addition of Rs. 4,42,03,466/-.

ITA nos.406 & 399/AHD/2019 A.Ys. 2014-15 & 2016-17 3

4.

The facts in brief are that the respondent assessee, a public company, is engaged in the business of manufacturing recycled plastic. The assessee was subject to search proceedings under section 132 of the Act dated 20th September 2016. During the search, an email from the laptop of senior manager of the assessee company namely Shri Sanjay Salecha was found which has been sent by Shri Suresh Gajjar a cashier at the assessee company. The email contained different excel sheets namely “CASH-1, CASH-II, SMMARY-1 and SUMMARY-II. The sheet “CASH-1 and CASH-II” represents entry of cash transaction (receipt & payment) on different dates and the sheet “SUMMARY” represents summary transaction of a day. As such the impugned sheets were containing transactions pertaining to F.Y. 2012-13 to 2015-16. It was further found that there was difference between the transaction noted on CASH-II/SUMMARY-II and CASH- I/SUMMARY-I which represent unaccounted receipt and payment. The AO worked out the amount of unaccounted receipt at Rs. 46,26,86,072/- and payment at Rs. 43,05,17,144/- for the period pertaining to F.Y. 2012-13 to 2015-16 and proposed make addition of impugned unaccounted cash receipts and payments.

4.1 The assessee submitted that there is mistake in working of unaccounted receipt and payment prepared by the AO. As such, the unaccounted receipts and payments are at Rs. 12,17,78,451/- and Rs. 11,74,39,206/- for the F.Ys. 2012-13 to 2015-16 and the year wise detail of the same stand as under:

AY Unaccounted cash receipts Unaccounted cash expense 2013-14 51,10,917 53,77,777 2014-15 4,42,03,466 3,98,29,050 2015-16 4,00,31,858 4,08,19,879 2016-17 3,24,32,210 3,14,12,500 Grand Total 12,17,78,451 11,74,39,206 4.2 The assessee further submitted that the cash receipt represents sales proceeds whereas payments represent purchases/expenses. Therefore, only difference in the amounts of sales and purchases/expenses shall be liable to be

ITA nos.406 & 399/AHD/2019 A.Ys. 2014-15 & 2016-17 4

added to the total income. The assessee submitted that it is the settled position of law that in case of unaccounted sales proceeds/purchases, only profit embedded shall be liable to tax and not the gross amount. The assessee also contended that seized document should be considered as whole, and the revenue cannot be allowed to pick and choose the noting made on same document/material as per its convenience.

4.3 The AO after considering the submission of the assessee accepted working of the assessee for unaccounted receipts and payments. However, the AO did not accept the plea of the assessee regarding the setoff of the payment against the receipts. The AO held that the assessee was asked to explain the sources of cash receipts based on documentary evidence but failed to do so. Thus, the AO considering the admitted position that the assessee received unaccounted cash, but sources of such receipt was not explained based on evidence treated the entire receipt as income of the assessee. Hence, the AO added the unaccounted cash receipts pertaining to the year under consideration (A.Y. 2014-15) for Rs. 4,42,03,466/- to the total income. Likewise, the AO held that the cash payments were also not explained by the assessee, hence the same liable to be treated as income under the provision of section 69C of the Act. However no separate addition was made on account of unaccounted cash payment since the unaccounted receipt exceeds the amount of payment/expenses.

5.

The aggrieved assessee preferred an appeal before the learned CIT(A) and reiterated its contention that only net of receipt and payment should be added to the total income.

6.

The learned CIT(A) after considering the facts in totality concurred with the contention of the assessee and accordingly deleted the addition for Rs. 3,98,29,050/0 being addition over and above the net off receipts and payments. The relevant finding of the learned CIT(A) reads as under:

ITA nos.406 & 399/AHD/2019 A.Ys. 2014-15 & 2016-17 5

5.2 Facts of the case, submissions of the appellant and assessment order have been perused carefully. On going through the same, it is not in dispute that the appellant had recorded certain unaccounted cash receipts and expenses as per the following details-

Asst Year Net receipts (Sales) Net Payments (Expenses) 2013-14 51,10,917/- 53,77,777/- 2014-15 4,42,03,466/-3,98,29,050/- 2015-16 4,00,31,858/-4,08,19,879/. 2016-17 3,24,32,210/-3,14,12,500/- TOTAL 12,17,78,451/- 11,74,39,206/- Further, it is also not in dispute that the above receipts and expenses in the nature of revenue receipts and expenses. However, as per the AO, entire receipts are to be treated as undisclosed income of the appellant and the appellant's contention is that only real income is to be taxed and accordingly, the difference between cash receipts and cash expenditure contained in the same seized document may be brought to the tax bracket in each year. The cash receipts and payments are mentioned on the same seized documents, therefore, it is logical & reasonable to read the whole documents in entirety and not partially. The appellant incurred expenditure out of the receipts, thus, the appellant should be allowed credit of expenses noted down on the seized material to arrive at the figures of income earned by the appellant. For this year, cash receipts were shown at Rs.4,42,03,466/- against which Rs.3,98,29,050/- were paid in cash. The appellant has been left with surplus of Rs.43,74,416 (4,42,03,466-3,98,29,050) and the same is considered income of the appellant for this year. Additions of Rs.43,74,416/- are confirmed and remaining additions are deleted. This ground of appeal is partly allowed.

7.

Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.

8.

The learned DR before us contended that the gross amount of unaccounted receipt should be made subject to the addition and no set off against the unaccounted expenditure should be allowed to the assessee. 9. On the other hand, the learned AR before us filed a paper book running from pages 1 to 240 and contended that the seized documents contain the information of unaccounted cash and payment and therefore the same should be

ITA nos.406 & 399/AHD/2019 A.Ys. 2014-15 & 2016-17 6

read as a whole. Accordingly, the benefit of set off should be allowed to the assessee. 10. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 11. We have heard the rival contention of both the parties and perused the materials available on record. Admittedly, the search proceedings under section 132 of the Act were carried out at the premises of the assessee, its associates, and key persons. As a result of search, certain excel sheets were found from the laptop/email of senior manager and cashier of the assessee company evidencing that the assessee has indulged into unaccounted cash transactions of revenue nature. The AO treated the gross receipt as income of the assessee from undisclosed sources whereas the learned CIT(A) held that the only real income i.e. receipts after netting off payments shall be treated as income of the assessee. We note that the excel sheets containing the details of unaccounted cash receipts and payments were found during a search proceeding under section 132 of the Act. The provisions of subsection 4A of section 132 and 292C of the Act provide legal presumption that any books of accounts or other documents found in the course of search, then it is to be presumed that the contents of such books of accounts or other documents are true. Thus, it means that whatever the contents noted in the search documents shall be presumed as true. As such it is not open for the revenue to presume part of the contents as true. Further it settled position of law by the various Competent Court including the Hon’ble Jurisdictional High Court of Gujarat that the seized documents shall be read in its entirety and accordingly income arising from such document shall treated as income of the assessee. The revenue cannot pick or choose the content as per its convenience from same set of seized materials/documents. One such judgment of the Hon’ble Gujarat High Court in case of M/s Navjivan Oils Mills vs. CIT reported in 252 ITR 417 where it was held as under:

ITA nos.406 & 399/AHD/2019 A.Ys. 2014-15 & 2016-17 7

“13. It is settled legal position that the seized material has to be read and accepted as a whole and it is not permissible to pick and choose or make further estimates therefrom unless and until there is cogent material in support of undertaking such an exercise.” 11.1 In the case of the present assessee, the seized excel sheets contained receipts as well as payments and it is also not in dispute that such cash transactions were unaccounted business transactions. Therefore, in our considered opinion, when business receipt and payments noted on same sheets/materials then such receipt and payment cannot be treated or held or read separately. As such the excel sheets shall be read in entirety and real income arising out of such sheets shall be brought to tax.

11.2 It is also pertinent to note that several competent courts time and again have held that in case where unaccounted business receipts are discovered then only the element of profit embedded therein shall be brought to tax. In holding so, we draw support and guidance from the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. President Industries reported in 258 ITR 654 where it was held as under: The amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question whether entire sum of undisclosed sales proceeds can be treated as income, answers by itself in the negative. 11.3 In the present case, the seized excel sheets itself contain the details of the unaccounted business receipts and payments. Therefore, considering the above principles laid down by the Hon’ble Gujarat High Courts, only the net amount i.e. receipts adjusted by the amounts of payments shall be treated as income of the assessee in the given facts and circumstances.

11.4 Thus, in view of the above elaborate discussion and judicial views, we do not find any infirmity in the finding of the learned CIT(A). Therefore, we hereby

ITA nos.406 & 399/AHD/2019 A.Ys. 2014-15 & 2016-17 8

confirm the same. Hence, the ground of appeal raised by the revenue is hereby dismissed.

11.5 In the result, the appeal of the Revenue is hereby dismissed.

Coming to IT(SS)A No. 399/Ahd/2019, an appeal by the revenue for AY 2016-17

12.

At the outset, we note that the issues raised by the revenue in the captioned appeal for the AY 2016-17, are identical to the issues raised by the revenue in IT(SS)A No. 406/AHD/2019 for the assessment year 2014-15. Therefore, the findings given in IT(SS)A No. 406/AHD/2019 shall also be applicable for the year under consideration i.e. AY 2016-17. The appeal of the revenue for the assessment 2014-15 has been decided by us vide paragraph No. 11 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2014-15 shall also be applied for the year under consideration i.e. AY 2016-17. Hence, the ground of appeal filed by the revenue is hereby dismissed.

12.1 In the result, the appeal of the revenue is hereby dismissed.

13.

In the combined result, both the appeals of the Revenue are hereby dismissed. Order pronounced in the Court on 11/12/2023 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 11/12/2023 Manish

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